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Thoughts on Negative Interest Rates
The big surprise from Thursday’s Fed announcement was not the decision to hold interest rates at zero, which most Fed observers expected, but the revelation that an unidentified FOMC member–probably Narayana Kocherlakota, but possibly another dove–is now advocating the use of negative nominal interest rates as a policy tool: What follows is a simplified explanation of how a policy of negative interest rates would work. The central bank would begin by enacting a large scale program of “quantitative easing” that would entail the creation of new money and the use that new money to buy assets from the private ... (full story)